Senior investment bankers in Europe are preparing for a cash windfall this summer, owing to a one-off unintended consequence of the region’s new bonus cap.

Source: Getty Images

The payments could in effect act like a second bonus and have an unforeseen impact on banks’ efforts to hire this year.

Most banks are waiting on further certainty about who will be caught by the EU’s new bonus rules before implementing changes to salaries and introducing allowances – payments made in addition to base pay for key workers.

It is expected that banks will make their decisions between now and the summer and then backdate allowances to the start of the year, according to pay consultants and remuneration lawyers in London.
These allowances could well match or top the monthly salaries for some code staff – a bank’s key risk takers or senior management – according to Jon Terry, global financial services HR consulting leader at PwC. This would put some senior bankers in line for payouts worth hundreds of thousands of pounds.

Although banks would have the option of paying higher monthly allowances throughout the second half of 2014 to make up the difference, remuneration lawyers believe a one-off lump sum is more likely.

Mark Ife, an employment partner at law firm Herbert Smith Freehills, said: “You backdate it to January. What you don’t want to do is to tell someone their monthly allowance is, let’s say £10,000 a month for six months, and then, say, their allowance reduces to £5,000 from January next year.”

The result could be a summer pay cheque loaded with several months of allowances, just a few months after the seasonal bonus payouts – typically towards the end of the first quarter – have been made.
This would be likely to delay the annual hiring season, which traditionally gets under way once bonuses land in accounts, according to Darren Isaacs, a partner at GQ Employment Law.

Simon Gorham, a senior associate in the employment team at law firm Taylor Wessing, said: “One would have thought that if you were minded to move after your bonus, if cash was the key driver, you’d be minded to wait until [that backdated pay rise] hits your account.” He added: “It is a unique one-off thing that people will have to think about if they are thinking about moving in 2014.”

The European Banking Authority set out its final draft Regulatory Technical Standard on remuneration in December, with those rules expected to be transposed into European law in the coming months. Allowances are being introduced by banks across the City as bonuses are now capped at one times base pay, or two times if shareholders consent.